Buying into Byetta

Shares of Amylin Pharmaceuticals and Alkermes are rallying today after FBR Biotech Analyst, Jim Reddoch, put out a research note saying the once-a-week diabetes drug they're working on could be a $3 billion-a-year seller. AMLN shares have been on a tear in recent months, rising from about $37 in March to nearly $50 today. That's on investor anticipation of robust test results and continued speculation that AMLN could get taken out.

Amylin and Eli Lilly are partners on the twice-a-day injectable diabetes treatment called Byetta (pronounced buy-ate-uh). But LLY, AMLN and ALKS are in the late stages of development of a once-a-week injectable form of the same drug. Alkermes owns the long-acting-release technology that allows the drug to stay and work in the body over one week. The major Phase 3 (typically the last step before filing for FDA approval) data are due out later this year. Reddoch says it "could be the most important data in biotech in 2007."

In his note to clients, Reddoch raises his price target on AMLN from $52 to $62. "Diabetes is a huge market with multiple multi-billion dollar sellers; none of these are game changers like LAR."

That's the abbreviation for once-a-week Byetta, standing for long acting release. He forecasts that if the drug gets approved and hits the market by late 2010, that worldwide sales could quickly jump to $3.2 billion by 2013. Alkermes would get a 7% royalty on Byetta LAR sales. FBR makes a market in ALKS and AMLN.

Although it's been awhile since I've had a chance to ask either CEO what their plans are, in the past Amylin has repeatedly said it's not for sale and Lilly has repeatedly said it's not looking to buy its diabetes partner.